Trump preps for charges his tax reform plan will explode deficit

President Trump is preparing to beat back charges that his tax reform plan will explode the deficit, White House officials said Monday, as the president and Republican leaders give up their longtime fury over skyrocketing national debt in favor of massive tax cuts.

Democrats laid down a marker early on that increasing the budget deficit would be reason enough to oppose the first major overhaul of the tax code in more than 30 years, and the criticism will hit close to home for Mr. Trump and conservative lawmakers who fashioned themselves as deficit hawks.

“We’re definitely prepared for that line of attack,” a White House official told The Washington Times. “We have always said that tax reform will include lowering rates, closing loopholes and broadening the base by ending special interest tax breaks. Those priorities will be reflected in the plan.”

As Mr. Trump gets ready to roll out the plan in a speech Wednesday in Indianapolis, GOP lawmakers and conservative activists also appear prepared to set aside — at least temporarily — longstanding concerns about the national debt, now $ 20 trillion and growing.

The president is expected to make the case for an urgent need to pass an aggressive, pro-growth tax package even if it means a short-term spike in deficits. The projected economic growth, the argument goes, will more than make up for initial lost revenue from slashing individual and corporate tax rates.

More details about what will be in the framework trickled out ahead of the announcement. Republicans are looking at slashing the corporate rate from 35 percent to 20 percent and the top individual rate from 39.6 percent to 35 percent, said sources familiar with the plan.

The president previously insisted that the wealthiest Americans would not benefit from reforms, taking on the other top attack from Senate Democrats: that he was trying to shower tax cuts on his rich friends.

Nixing deductions coupled with a rate cut could keep the effective tax rate paid the wealthy at the current level.

“This is a plan for the middle class and for companies so they can bring back jobs,” Mr. Trump said earlier this week.

House Speaker Paul D. Ryan and Ways and Means Committee Chairman Kevin Brady have long stressed the need for permanence in the tax code overhaul, which means Republicans would likely have to pass a package that doesn’t add to long-term deficits.

But Mr. Ryan wouldn’t commit to a “revenue neutral” package recently, saying details would be worked out later and the key is to pass “pro-growth” reform that will jump-start the economy.

“We continue to be focused on permanency, or as much of it as we can achieve,” Mr. Brady told reporters.

Mr. Brady and Ways and Means panel members huddled Sunday and Monday at a retreat to go over tax policy, and the broader House GOP conference is scheduled to hold a half-day retreat on tax reform at National Defense University on Wednesday ahead of Mr. Trump’s announcement.

Democrats are expected to oppose tax reform regardless of what’s in it. But their class-warfare attacks and charges of deficit hypocrisy could threaten to undermine public support for a plan and peel off crucial moderate Republicans in the Senate.

Chris Edwards, director of tax policy studies at the libertarian Cato Institute, said Mr. Trump is on the right path with a pro-growth defense.

“The deficit problem will be mainly caused by the middle-class tax cuts (such as the doubling of the standard deduction) because those produce little economic growth benefit. By contrast, slashing the corporate tax rate will generate a large growth benefit and cause little if any revenue loss in the long run,” he said.

He added that the benefits for middle-class workers outweigh any concerns about short-term deficits.

“Trump should focus on the benefits of business tax cuts for average workers. For example, there are tens of millions of Americans who work for major corporations, and they are proud to do so. They will gain from corporate tax cuts, and Republicans should be making that case,” he said. “Tax cuts that are good for GM are good for GM workers.”

Conservative activists and deficit hawks, hungry for a legislative win amid the GOP’s Obamacare repeal debacle, said they’re on board.

“Especially at the beginning of this, we expect there to be a j-curve where there is some deficit spending, but at the same time, the revenues we expect to come back as the economy grows,” said Adam Brandon, president of FreedomWorks, a grassroots conservative advocacy group.

“I think that takes care of that problem in the medium, if not long term,” he said. “I am a debt hawk, but the only way you’re going to get in front of our debt is if you have economic growth.”

The GOP also is eyeing a rate cut for small businesses that file their taxes as individuals from the top 39.6 percent rate to 25 percent, according to Rep. Jim Renacci, a member of the tax-writing House Ways and Means Committee.

“It’s very close. It could be there, could be lower, could be higher,” Mr. Renacci, Ohio Republican, said on Fox Business Network. “We’re trying to get to those numbers.”

He pointed out that Mr. Trump wants to bring the corporate rate down to 15 percent, and said he’d love to get it there as well.

“The real key is some people want to know how we’re going to pay for those tax cuts. Many Republicans don’t believe we have to pay for tax cuts,” Mr. Renacci said. “I’m one of those that believe we have to reduce our tax rates and become more competitive. So those are the things that are going to be talked about this week and next week.”